August 18, 2003
Financial Services Agency
Announcement of the ''Program Year 2003 Basic Guidelines and Basic Plan for Inspections''
We are announcing the ''Program Year 2003* Basic Guidelines and Basic Plan for Inspections'' in the interest of improving transparency of the administrative work associated with financial inspection.
* ''Program year 2003'' refers to the period from July 1, 2003 through June 30, 2004.
For further information, please contact:
Mr. Ono (ex. 2502)
Mr. Horimoto (ex. 2504)
Mr. Hara (ex. 2517)
Inspection Coordination Division (03-3506-6000)
Financial Services Agency of Japan
''Program Year 2003 Basic Guidelines and Basic Plan for Inspections''
I. Basic Guidelines for Inspections
Under the basic policy that fair and transparent financial administration should be achieved together with clear rules based on the market discipline and the principle of self-responsibility, the Financial Services Agency (FSA) has made continuous efforts of implementing efficient and effective inspections with ''Financial Inspection Manual'' in order to stimulate financial institutions to build internal control based on the self-responsibility.
In the program year 2003 (July 1, 2003 to June 30, 2004), the FSA will continue to carry out accurate and effective inspections, based on various measures conducted in the previous program year and considering current environment surrounding financial institutions. It will place particular emphasis on the following basic ideas.
1. Measures conducted during the program year 2002
|(1)||Implementation of profound inspections on major banking groups
|(2)||Ensuring the implementation of appropriate inspections fully taking into account the actual business conditions of small and medium sized enterprises (SMEs)
|(3)||Appropriate responses to current challenges
2. Priorities in the Program Year 2003
The FSA will carry out inspections in the Program Year 2003 (July 1, 2003 to June 30, 2004) with a view to appropriately responding to the various changes surrounding financial institutions. It places particular emphasis on the following items including measures introduced in the previous program year.
|(1)||Implementation of more profound inspection to each major banking group
In order to bring about tighter asset assessment by major banks, the FSA will continue to carry out the measures implemented following the ''Program for Financial Revival'' in the context of the year-round inspections. They include (a)announcing the gap between major banks' self-assessment and the result of FSA's inspections, (b)implementing examinations of debtor companies' reconstruction plans by the special team, (c)harmonizing borrower classification of large debtors among major banks, and (d)closely checking the state of deferred tax assets. At the same time, the FSA will take necessary measures responding to the changes in the financial environment. It will also check compliance and risk management function of each financial group as a whole, based on the recently issued ''Inspection Manual for Financial Holding Companies''.
|(2)||Ensuring the implementation of inspections properly appreciating the actual business conditions of SMEs
The role of financial institutions in credit business is to provide money to enterprises smoothly while taking risks with proper risk management. The financial institutions, when they act as intermediaries, look at different aspects depending on whether the borrower is an SME or a major enterprise. Bearing such features in mind, and building on the achievements made in the previous program year, the FSA will put particular emphasis on the following measures in order to carry out appropriate inspections appreciating the actual business conditions of SMEs.
|(3)||Measures to ensure protection of users and improve users' convenience
It is a general principle that financial institutions receive adequate remuneration only when they provide various financial services matching the needs of users, while making efforts to improve protection and convenience of users. Therefore, it is required that financial institutions properly fulfill their responsibilities and obligations to customers including accountability and duty of faithful trustees.
Reflecting such a view, the FSA will carry out inspections with emphasis on the following points, for the purpose of ensuring protection for users and increasing users' convenience.
|(4)||Examination of management function of the risk associated with computer systems
Computer systems are indispensable and fundamental infrastructure for financial institutions' business, and the importance of preventing troubles with the systems has been increasing in recent years. Furthermore, the risk related to system integration has been expanding through reorganization of financial institutions accompanied by integration of computer systems. Responding to those situations, the FSA will continue to examine management function of computer system risk, using the ''Checklist for Management Function of System Integration Risk''.
|(5)||Implementation of inspections of government financial agencies and postal agency
The FSA will inspect the accuracy of self-assessment of assets, the appropriateness of write-offs and provisioning, and the appropriateness of the internal control function, bearing in mind each institution's character. The inspections will be based on the ''Inspection Manual for Deposit-Taking Institutions'', the ''Inspection Manual for Insurance Companies'' and other manuals, which are used in inspections to financial institutions in the private sector.
|(6)||Activities to profound inspections corresponding to characteristics of each financial area.
In addition to the above measures from 2.(1) to 2.(4), the FSA will conduct profound inspections, in accordance with characteristics of each financial area.
II. Basic Plan for Inspections
|Note: (1)||These inspection numbers may be changed as necessary.|
|(2)||Under the year-round inspections and inspections by specialized sections, the FSA has been implementing inspections more than once to a number of major banks and holding companies of major banking groups; i.e., as ordinary inspections, as special inspections, and so on. Nonetheless, those inspections to one company are counted as one inspection.|
|(3)||Figures on the ''Banks'' are the aggregated amounts of inspected banks and inspected bank holding companies. Those of ''Insurance companies'' are also the aggregated amounts of inspected insurance companies and inspected insurance holding companies.|
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